Government Rejects 'GST on UPI' Rumours, Says MDR Charge Will Be Offset via Input Tax Credit

The central government moved on Thursday to shut down a wave of social media claims suggesting that a fresh Goods and Services Tax was being imposed directly on UPI payments, calling the reports false and clarifying the actual mechanics of the new charge that has stirred confusion among merchants and consumers alike.

What the government actually said

Government sources told news agency ANI that "GST on UPI is a false rumour" and that any GST component tied to the newly introduced Merchant Discount Rate, or MDR, on eligible transactions would be set off through input tax credit. In practical terms, this means businesses paying the MDR will be able to claim back the GST portion against their existing tax credits, leaving the government with little to no net revenue from the levy itself. Officials were careful to distinguish between the MDR, which is a processing fee shared among participants in the digital payments ecosystem, and a tax collected outright by the Centre, arguing that conflating the two had fuelled much of the recent confusion online.

The MDR framework in detail

The clarification comes as India prepares to roll out MDR on person-to-merchant UPI transactions above Rs 2,000 starting October 15, at a rate of 0.4 percent, subject to an overall cap of Rs 300 per transaction. Officials stressed that the new charge will not apply universally. Payments up to Rs 2,000 remain untouched, and recurring transactions such as utility bill payments, OTT subscription renewals and mutual fund instalments will stay outside the MDR's reach even if their value crosses the threshold, since they are treated differently from one-off merchant payments. Small merchants who fall under the P2PM category, receiving up to Rs 1 lakh a month through UPI QR codes, have also been kept out of the new charge altogether.

Pressure denied, cash shift ruled out

Separately, the government pushed back on suggestions that the MDR framework was introduced because of external pressure, calling that claim "false and misleading." Sources said the decision followed consultations with regulators, payment aggregators and other industry stakeholders over an extended period, and that the government intends to keep a close watch on how the rollout unfolds, particularly to ensure merchants do not pass the additional cost on to consumers at the till. Officials also said they do not expect the new charge to push transactions back toward cash, arguing that UPI's convenience will continue to outweigh the modest fee for most merchants and shoppers.

The clarification lands amid political pushback, with Congress leaders raising questions both about the substance of the MDR policy and the process through which it was announced. With the October 15 rollout date now just weeks away, the government's public messaging in the coming days is likely to focus heavily on reassuring both merchants, who will bear the direct cost of the MDR, and ordinary UPI users, who officials insist will not see any separate tax appear on their payment screens.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.